[YS Learn] The 20-year-old journey of Nazara Technologies that helped its early investor get a 40x exit

For Sandeep Singal, Co-founder and Managing Director, WestBridge Capital India Advisors, meeting entrepreneurs is a part of an everyday routine. But 25-year-old Nitish Mittersain, Founder of Nazara Technologies, especially piqued his intrigued when he first met him in 2005. 

“The young 20-odd-year-old had two mobile phones in 2005; he was texting on one and playing on another. He seemed confident and knew about the space. After close to six months of conversations, Nitish had given me an understanding that he was not only an avid gamer but also a businessman,” Sandeep recalls. 

Sandeep had seen an interview of Nitish on gaming. While the company wasn’t earning a lot of revenues back then, the young founder seemed very passionate about the field. “One thing good about the business is that if you are a user yourself, you can imagine it intimately when you’re marketing it to someone else,” says Sandeep. 

The story on the other side was a little different. Nitish recollects, “I remember seeing a post-it note on my table telling that an investor had called. Sandeep and I spoke for close to six months and after that, I walked into a room full of 20 odd investors with zero experience of talking to them or even knowing anything.” 

The conversation got Nitish a $3 million investment from WestBridge Capital. Nazara is now gunning for an IPO, and WestBridge saw a partial exit in 2017, with its stake coming down from 60 percent to 21 percent, and a further reduction of three to four percent in 2020. While the quantum of the exit is still undisclosed, the investment firm got over a 40x return on its $3 million investment. 

Nazara Technologies aims to clock a revenue of Rs 450-470 crore this fiscal year. The company had clocked a revenue of Rs 164 crore in 2018-19, which increased to Rs 264 crore in FY20.

The gaming company’s network grew from 50 million monthly active users (MAUs) to 100 million MAUs, and expects this to further grow to 130 million by the end of this fiscal. The company has also invested in other gaming startups like Halaplay and has acquired the content platform – SportsKeeda. 

It has invested $50 million in 13 startups in the last two years, and is looking to act as a catalyst to expedite the growth of gaming, esports, and sports content across emerging markets.

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Learning from the fall 

A graduate in Business Administration from Mumbai’s Sydenham College of Commerce and Economics, Nitish’s love for gaming had sparked when he was in Class VII. And by the time he was in college, the love further evolved to include computers, technology, and the growing internet. 

It was what led him to start Nazara Technologies in 1999. “I felt gaming could become a big business soon. Hailing from a business family, I had an inclination towards business and would keep experimenting with different businesses,” says Nitish, who in 1999 was set to do an MBA in the US, but opted to start up instead.

The journey, however, wasn’t easy, and the company had to see several ups and downs. But keeping an eye on the ball helped. 

When the dotcom bubble was at its height in 1999, the company had a lot going on as the team was building localised games online, but there was a glitch – they were yet to think of a strong monetisation model.

Back in 2001, the dotcom bust had hit the then 20-year-old Nitish Mittersain hard. Nitish would spend his days with a black folder that had the name of all his debtors. He had borrowed close to Rs 3 crore from family and friends to kick off his business. 

This taught him the hardest lesson of his life – the need for a strong differentiation model. 

“I was in debt. We were in a time when there wasn’t any external VC funding available. Also, the market situation was really bad. I was 20, and I had no clue the impact of having a new revenue model would have on the company. In retrospect, I can say I did a far more expensive and richer MBA course sitting out of Mumbai than I would do even out of Harvard,” recollects Nitish. 

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Back to basics

In 2004, the team was back to ground zero. Until then they were building messing services for enterprises. The passion for gaming continued to exist and with experience, Nitish started working on some mobile phones and with the operators. 

“I even approached Airtel to work with them and they didn’t even bother giving me the time then. It was then that I realised the importance of having a strong differentiator. I was building games in cricket, and I then thought of getting Sachin Tendulkar as an ambassador. That took several months to pan out, but we managed to get him onboard,” says Nitish. 

Nazara started making cricket games branded by Sachin, which got them the Airtel contract along with media recognition. It was what caught Sandeep’s eye. 

“After those few years of financial struggles and wondering about getting the right revenue model, seeing Rs 6.6 crore hit our bank account felt like it was a lot of money. It gave us a new lease of life,” recollects Nithish. 

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Trusting the founder

While Nazara was back on track and running its operations, until 2008, the gaming industry in India wasn’t making any revenues. The team was still working on different business models but was yet to discover a model that clicked. 

It was then that WestBridge infused another $1.5 million in 2007. What gave the investor confidence? Sandeep says, 

“There are some big markets and gaming is one of those. Gaming is a need. And while the market was yet to take off, we had immense confidence in Nitish. He always seemed like the right guy to back. In many early-stage investments, the founder tries a few things and then just moves on to the next. But Nitish was persistent. He was in it for the long term. It just made sense to double down on him, even if the markets hadn’t fully opened up to gaming.”

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Finding the right timing 

In 2009, there were some important shifts on a macro level with respect to mobile gaming. The data costs started dropping, Android devices started entering the market, and the user base started to expand. 

“We kept a close eye on this and had started working on business models that were tangible in terms of revenue generation. We were already providing games to mobile operators. We then introduced a Netflix-like model for gaming, with a catalogue of games for a subscription of Rs 99. We took an important decision – focus on casual gaming,” explains Nitish. 

This worked well as the revenues started coming in and the team began focusing on that. From 2009 to 2012, the team focused on cash flow and profitability. “We took the lessons from the earlier days and focused on revenues from day one,” says Nitish. 

He adds they were also very careful that the revenues continued to generate profits. By 2012, the team decided to take the same model to multiple other territories and expanded it into emerging markets where the demography was similar to what it was in India. This meant entering South East Asia, the Middle East, Sri Lanka, Nepal, Africa etc. 

By then, they didn’t need to raise any funding. They were already at a cash balance of Rs 220 crore, after dividends and paybacks. By 2017, the market in India started expanding and that is when the team wanted to expand beyond the casual gaming market. 

“In the last three to four years, we have entered into e-sports and other segments. We wanted to build a platform that caters to the needs of the gamers in India across different levels of evolution, demography etc. This is when we started looking at acquisitions as well, as an inorganic path to growth,” explains Nitish. 

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Evolve and change with supplementary markets

The growth was possible as the team kept an eye on the market and its evolving dynamics. Nitish explains that the initial gaming experience of Indian consumers is often on the mobile device. Sandeep adds that the good thing about any technology or gaming business is that entrepreneur gets new opportunities. But it is also a double-edged sword. 

“What gave me confidence is that Nazara kept on building verticals, which were diversified. And many were future hedged, and not dependent on any particular bet. There are multiple opportunities. The risk automatically reduces. The team also diversified in the management team side, where Nitish got in experts to run the day-to-day operations so that he could focus on creating the strategy,” adds Sandeep. 

Speaking of how the market also helped, he adds, “Most Indians don’t have consoles or gaming PCs. This is the mass consumer base. In the early years, gamers usually onboarded with casual games. They had a lower affinity to pay. But the devices, even the cheaper ones, were becoming powerful when it comes to hosting games. The experience they offered was great. This meant that they could move from casual gaming to more evolved forms of gaming.”

The next shift came when the internet bit rate started increasing, and the number of people adopting data on the mobile due to social networking platforms increased. The digital payments started evolving and grew rapidly. 

Another important factor was that larger international games had started moving users from casual gaming to mid-core gaming. 

“We felt the gamers in India had started maturing into evolved gamers. It meant focusing on the evolved gamer,” explains Nitish. This was when the team acquired the company Northern Gaming, which was a leader in the space. 

“The idea of these acquisitions is that they continue to be run by their founders and teams. Because gaming is an extremely creative and passionate space, it is difficult to merge these companies in the traditional sense. You need to give them the freedom to operate independently while synergising on a common platform,” says Nitish. 

Speaking of his last biggest learning, Nitish says, 

“In the gaming business, it is extremely easy to get swayed by vanity metrics and show growth, but that pushes you into a vicious cycle of raising more money. It is a slippery slope because you chase metrics that don’t deliver any value. It is important to focus on metrics that add long-term value to your business.

"Distinguish between a vanity metric and a real metric. Doing this helped us get the investor a large exit. Investors who have backed me need that exit, especially those who have been with us from the early days. It is a big priority. We have always tried to be a debt-free company. You are tempted to pick up debt with a strong balance sheet like ours, but times like this (COVID-18), being less leveraged and having no debt or less debt becomes important. If you live to fight another day, you can win,” he adds. 

Nazara is now all set for its IPO race this year.